This week's jump in oil prices is likely to be far more damaging to Europe than it will be to the U.S.
For that reason, savvy investors would do well to avoid stocks dependent on activity in Europe and instead look elsewhere for investments.
Put another way, avoid the following exchange-traded funds or ones like them: The iShares MSCI Eurozone (EZU) , the iShares MSCI Germany (EWG) and the iShares MSCI Italy (EWI) . Those three funds track stocks in, respectively, Europe's single currency area, Germany and Italy.
Instead, consider U.S. stocks such as those held in the SPDR S&P 500 (SPY) ETF which tracks the large-cap S&P 500 index. If you must buy European stocks, then seek out those that will benefit from a robust oil market such as oil major BP (BP) .
1. Oil Prices to Remain Buoyant
The first piece of the puzzle is that the rise in oil prices, which soared after a drone attack on Saudi Arabia's oil infrastructure last weekend, may not be as short-lived as some think. In other words, the recent price of $65 a barrel for Brent crude, which is up 9% over the last month, might be with us for a while.
That's because of a combination of rising tensions in the middle east and the likelihood that the damage to Saudi's oil operations is worse than the initial estimates suggest, according to a recent report from New York-based bank Brown Brothers Harriman. The report states the following:
Saudi Aramco officials have grown less optimistic that there will be a rapid recovery in oil production. Press reports suggest that the damage was more extensive than previously thought and that it may be weeks or possibly months before most of the output will be restored. We suspect oil prices will not fall too much more given ongoing tensions.
Those higher crude prices could be more pronounced in Europe than the U.S. due to the different price benchmarks that get used.
Brent crude pricing is used in Europe whereas the WTI price is the price of reference in much of the U.S. And the latter, WTI, has risen only 6% over the past month versus the 9% rally for Brent.